Foreign Account Tax Compliance Act (FATCA)

New Jersey IRS Voluntary Disclosure Law Firm

Overview of the Foreign Account Tax Compliance Act

The Foreign Account Tax Compliance Act (FATCA) was enacted into law in March 2010 as part of the Hiring Incentives to Restore Employment Act (HIRE).  FATCA aims to stop tax evasion by U.S. taxpayers owning financial assets in foreign bank accounts by requiring such taxpayers to comply with strict IRS reporting requirements.  In addition, the Act also requires foreign financial institutions (FFIs) to disclose information about accounts held by U.S. taxpayers and accounts of certain foreign entities with substantial U.S. owners. 

FATCA Requirements for Individuals

Under FATCA, certain individual U.S. taxpayers must report information to the IRS about their foreign financial assets and offshore accounts where the total value of such assets exceeds $50,000 dollars.  

U.S. taxpayers exceeding the $50,000 dollar reporting threshold are required to disclose information about their offshore accounts and assets on IRS Form 8938 (Statement of Specified Foreign Financial Assets) when filing their yearly income tax return.  It is important to note that FATCA’s requirements are in addition to the FBAR (Report of Foreign Bank and Financial Account) reporting requirements:  taxpayers may be required to file both forms with the IRS and separate penalties can apply for failing to submit each form.  

Taxpayers who fail to submit Form 8938 to the IRS will be subject to a penalty of $10,000 dollars.  Additionally, if there are any underpayments of taxes associated with the undisclosed offshore assets, the taxpayer will face a 40 percent penalty on such underpayments.  In the event a taxpayer repeatedly fails to comply with FATCA’s reporting requirements after receiving notice from the IRS, the government can increase the amount of the $10,000 dollars penalty up to $50,000 dollars.

Given FATCA’s complexity and harsh penalties, individuals and businesses holding assets in offshore accounts should consult with an experienced New Jersey IRS voluntary disclosure attorney make certain that they are in compliance with all FATCA requirements. 

FATCA Requirements for Foreign Financial Institutions (FFIs)

FATCA requires foreign financial institutions and entities (FFIs) to provide certain information to the IRS about “financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.”  

In order to comply with FATCA’s reporting requirements and avoid being withheld upon, FFIs may elect to register with the IRS and agree to disclose the required information associated with such accounts directly to the IRS.  FFIs that execute a “special agreement” with the IRS will be required to comply with certain obligations associated with their account holders, including undertaking identification and due diligence procedures and providing annual reports to the IRS.  Additionally, under the special agreement, the IRS explains that the FFI must agree to:

[W]ithhold and pay over to the IRS 30-percent of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income, made to (a) non-participating FFIs, (b) individual accountholders failing to provide sufficient information to determine whether or not they are a U.S. person, or (c) foreign entity accountholders failing to provide sufficient information about the identity of its substantial U.S. owners.

Complying with FATCA

The experienced tax law team at Thorn Law Group is well-positioned to advise and counsel clients in New York, New Jersey, Connecticut and Philadelphia, across the United States, and abroad who are dealing with FATCA’s offshore account reporting requirements.  Each New Jersey IRS voluntary disclosure attorney at our firm has an in-depth understanding of the complicated rules and procedures U.S. taxpayers and foreign financial institutions must comply with under both FATCA and other U.S. laws and regulations.    

At Thorn Law Group our attorneys focus on developing plans and approaches that help individual taxpayers, businesses, trusts and other organizations bring their offshore financial accounts and assets into compliance with all legal requirements.  Our legal team also has extensive experience working with foreign financial institutions to construct compliance strategies that meet FATCA’s strict reporting rules and other legal obligations established by the U.S. government.  

If you have questions about FATCA or would like to discuss your offshore accounts and assets with an experienced New Jersey IRS voluntary disclosure attorney at our firm, contact Kevin E. Thorn, Managing Partner of the Thorn Law Group.

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